Emerging markets creep higher; Argentina bonds continue climb from lows; primary checks waters

By Aaron Hochman-Zimmerman

New York, Aug. 13 - Emerging markets wound tighter on Wednesday in the face of a down day for the broader market.

In trading, Argentina continued its bounce back from a recent low as offers of bond buybacks overshadowed its recent Standard & Poor's rating downgrade.

The benchmark discount bonds due 2033 tacked on 2 points.

In the primary, no new issuers were ready to take the stage, but a strategist began feeling more confident that, barring big losses for emerging market credit before Friday, the pipeline may open up next week.

Even as equities sank, volatility dropped off toward the end of the session but came back to end up by 0.38 at 21.55, according to the VIX index. The index is a commonly used gauge of market volatility.

Georgia ceasefire eyed

After a ceasefire was reached between Georgia and Russia, the Georgian side accused Russia of violating the terms of the agreement as Russian tanks pressed into the city of Gori.

Early on Wednesday conflicting reports were issued over the whereabouts and intentions of a Russian armored column that was seen heading toward the Georgian capital Tbilisi.

Georgia's president Mikhail Saakashvili told CNN he believes the column intends to encircle the capital.

Russia denied it had ordered troops to Tbilisi and that it violated the ceasefire agreement brokered by France's president Nicolas Sarkozy, who also serves as the E.U. president.

Also, after a visit to Georgia, Ukraine's president Viktor Yushchenko announced that he is prepared to send a peacekeeping force into the country, which is estimated to have more than 100,000 war refugees.

"It is clear that the peacekeepers who started shooting people do not deserve confidence," Yushchenko told reporters in Tbilisi, according to his web site.

"Today we must internationalize the peacemaking format and to make it open for other countries ... I am sure that such countries as Ukraine could send their peacemakers within the framework of international mandate to demonstrate clear-cut guarantees of the obligations that may appear in the nearest future," he said.

The Russian government bonds due 2030 traded unchanged at 112.25 bid, 112.5 offered.

Elsewhere in emerging Europe, in Turkey after narrowly escaping the constitutional court with its life, the AK Party has undertaken to cut parliamentary immunity and create a permanent body to oversee political ethics, the Turkish Daily News reported.

Since the election of 2002, the chief opposition party, the Republican People's Party (CHP), has accused prime minister Recep Tayyip Erdogan of hiding behind his political immunity, the report said.

The new ethics rules, including regulations governing who may accept gifts, may extend to judiciary and military officials as well.

Argentina leads LatAm tighter

Latin America saw "a significant amount of tightening" on Wednesday as investors found "an appetite for some risk," a strategist said.

"There's a good feeling out there," he said, adding: "If sentiment continues like this we could see some new issues next week."

Meanwhile, "Argentina continues to improve," he said. "Spreads have tightened anywhere from 10 basis points to 30 bps depending on the tenure."

The 8.28% Argentine discount bonds due 2033 jumped 2 points to 74.5 bid, 74.75 offered.

In Venezuela, food prices were up 50% after the government cut subsidies on staple items, according to the BBC.

Caracas hopes the higher prices will spur greater production in order to reduce demand, the report said.

The 9¼% Venezuelan government bonds due 2027 added 0.15 point to 88.25 bid, 89.25 offered.

In Brazil, the 7 1/8% sovereigns due 2037 inched up 0.05 point to 111.3 bid, 111.6 offered.

Also in corporates, the consent solicitation from Brazil's Grupo Friboi ended on Wednesday.

A strategist heard of no interest in the offer for its $275 million of 9 3/8% senior notes due 2011 and $300 million of 10½% senior notes due 2016.

In order to enhance its ability to reallocate its debt structure, which will enable each distinct geographic operation to finance its own working capital needs, Friboi offered $25.00 per $1,000 principal amount of 9 3/8% notes and $40.00 per $1,000 principal amount of 10½% notes.

"I don't think that'll happen," a strategist said.

Quiet Asia little changed

Asian trading was "kind of quiet," a trader said, adding: "It's August."

"CDS hasn't moved that much and neither has cash," he said, although "oil is up $3.50 from the low print the other day, so that's something to watch."

Light sweet crude traded as high as $117 per barrel.

Meanwhile, in the Philippines the government announced a 10-year maturity for the PHP 40 billion of financial stability bonds it plans to sell in September in order to provide a liquidity injection to the central bank, the Manila Times reported.

The bank posted a loss of PHP 87 billion in 2007 compared to a profit of PHP 4.7 in 2006, the report said.

The Philippine sovereign bonds due 2030 were better by 0.375 point to 128.375 bid, 128.875 offered.

In Indonesia, construction costs per project rose to $10.4 million through the first five months of 2008 compared to $7.2 million in 2007.

Steel prices has contributed most to costs by growing 40% year on year, followed by a 10% to 15% rise in the price of cement.

Also, the recent lending rate hike to 9% has made investors averse to taking on risk in property, the report said.

The Indonesian government bonds due 2017 were unchanged at 100 bid, 100.625 offered.

Pakistan's bonds continue to trade lightly as president Pervez Musharraf readies his defense against impeachment proceedings in parliament.

"I haven't seen it, but I think it's still trading in the low 70s [bid] context," a trader said.

Primary eyes clearer skies

One strategist suggested that if more successful days like Wednesday continue until Friday, emerging markets may see new issuers come out of hiding some time next week.

Still, investors will be forced to stay at least cautiously optimistic for the next few days.

Elsewhere, "that egg deal is still in the market," another strategist said about the deal from Ukraine's ZAT Avangard at an amount between $100 million and $150 million, which has been talked in the 20% area.

Talk was revised from the 13% area for the three-year eurobond offering.

Standard Bank was asked to act as bookrunner for the deal.

Proceeds will be used to open four new poultry plants.

Avangard is a Zahvizdya, Ukraine-based egg and egg products producer.

Also, a market source heard that the Dominican Republic's Cap Cana was working toward the private placement of $100 million through Lehman Brothers.

The purpose would be to restructure a bridge loan from Deutsche Bank and Morgan Stanley.

The mortgage company, which Deutsche Bank used to support the bridge loan, Mortgage IT, went bankrupt in the first quarter, the source said.

"Good luck," the source offered the issuer.

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